We consider the optimal portfolio selection problem for a constant relative risk aversion (CRRA) investor who derives utility from his terminal wealth. The stock returns are predictable, but the predictive variables are only periodically observable with noise. We obtain the investor's value...

Central banking is intimately related to liquidity provision to banks during times of crisis, the lender-of-last-resort function. This activity arose endogenously in certain banking systems. Depositors lack full information about the value of bank assets so that during macroeconomic downturns...

Central banking is intimately related to liquidity provision to banks during times of crisis, the lender-of-last-resort function. This activity arose endogenously in certain banking systems. Depositors lack full information about the value of bank assets so that during macroeconomic downturns...

We propose that the presence of large customers makes supplier firms' earnings more persistent, which leads to earnings shocks having a greater impact on stock prices of these firms. As a result, the managers of firms with large customers have stronger incentives to manage earnings. We formalize...

There is a tenuous link between market efficiency and economic efficiency in that stock prices are more informative when the information has less social value. We theoretically and empirically investigate this link in the context of CEO turnover. Our theoretical model predicts that, although the...

quot;Risk managementquot; in securities markets refers to the oversight of portfolio managers and professional traders when they trade on behalf of investors in security markets. Monitoring of their trading performance, profit and loss, and risk-taking behavior, is measured by principals using...

Why do governments bailout banking systems in distress? We argue that the government can efficiently provide liquidity. We present a general equilibrium model in which not all assets can be used to purchase all other assets at every date. At some dates agents want to sell projects or securities....

Costly information acquisition makes it rational for investors to obtain important economic news only with limited frequency or limited accuracy. We show that this rational inattention to important news may make investors overinvest or underinvest. In addition, the optimal trading strategy is...

Gorton and Huang (2001) argue that private coalitions of banks can act as central banks, issuing private money and providing deposit insurance during times of panic. This lender-of-last-resort role depends upon banking panics occurring threat of liquidation makes the private bank coalition...

Private information imposes a severe trading disadvantage on uninformed traders while at the same time providing firms with valuable signals for investment adjustment. The two forces have opposite impacts on the cost of capital, and the net effect depends on which force dominates. We show that...